All about staffing agencies

Staffing agency business overview

What is a staffing agency?

A staffing agency is a business that searches for workers on behalf of other organizations. They help these clients with temporary and/or permanent roles. (And they help job seekers find jobs.) Personally, I find this definition from Law Insider to be the most helpful:

“Staffing agency means any person who undertakes, with or without compensation, to recruit, refer or place individuals for employment, or to procure opportunities for work, or to with an employer.” – Staffing agency definition from Law Insider.

For temporary jobs, the staffing agency acts as the “employer of record” or legal employer and provides workers wages and benefits. For permanent jobs, the staffing agency operates as an extension of the HR team by helping them recruit, screen, and interview talent for permanent jobs within the company. This model, often called “direct hire,” is different in that the recruited person is never an employee of the staffing agency.

Staffing agencies tend to specialize in a particular kind of service or talent. For our part, we mostly focus on office and professional roles.

What else do you call staffing agencies?

Staffing companies are called many different things, some of which include:

  • Employment agencies
  • Recruitment companies
  • Consulting companies
  • Staffing firm

All of these terms are interchangeable and it’s mostly a matter of preference which label a staffing company prefers using.

Additionally, the service performed, staffing, is itself sometimes called different things, such as:

  • Staff augmentation (often associated with information technology staffing projects)
  • Consulting services (often associated with IT when the workers are 1099 contractors, not employees)
  • Temp service (usually associated with short term, less experienced positions)
  • Contingent labor (often associated with project-based staffing)
  • Employee leasing (this is a somewhat outdated term referring specifically to temporary employment)

These terms are also all interchangeable.

How much do staffing agencies cost?

Staffing agencies make money through temporary staffing, temp-to-permanent staffing, or direct hire staffing. Each of these models generate revenue for the agency a little differently.

  • Temporary staffing: the client is charged an hourly “bill rate” that accounts for costs associated with the employed individual. These include: wages, benefits, insurance, risk, operating costs, and profit. Costs might also be expressed as a “markup rate” or “markup percent.” For example, an employee makes $50 / hour and the markup rate charged by the agency is 50%. The bill rate is therefore $75 / hour ($50 + $50*.5).
  • Temp-to-permanent staffing: the client is charged an hourly “bill rate” as they are in normal temporary staffing. However, the client can hire the person on directly if they’re a good fit for the organization. If this happens, the client is charged a placement fee that decreases over time the longer the employee works temporarily.
  • Direct hire staffing: the client is charged a percent of the first year’s annual salary for the selected candidate. This is sometimes called a “placement fee” For example, if a person makes $100,000 / year and the placement fee is 25%, the amount charged is $25,000. Sometimes, a client asks for “executive search services.” This model is virtually identical except is usually a harder and more involved search reserved for leadership roles. It also typically costs more.

Actual out-the-door costs for staffing vary within the industry and is subject to negotiation based on a range of factors. The good news is that it usually doesn’t cost anything to have a staffing agency look for talent. It only costs if you decide to bring someone on board.

For our part, you can schedule a time to go over pricing with one of our business development team.

Is temporary or direct hire better for me as a client?

Different organizations will prefer various staff augmentation models. Generally, there are several key questions to ask yourself:

  • Is this project-based or short term? If so, I recommend temporary staffing.
  • Do I want to try the worker out? If so, I recommend temporary-to-permanent staffing.
  • Do I want help recruiting for internal roles? If so, I recommend direct hire.
  • Do I want to pay up front or spread out the cost? If up front, I recommend direct hire as a straight forward, one time fee. If spread out, I recommend temporary-to-permanent.

Who uses staffing agencies?

Many organizations use staffing agencies. Government, companies, nonprofits–most organizations use or have used staffing agencies to solve business needs such as finding talent quickly or completing projects.

Why hire a staffing agency?

This is the question I get asked the most: “Why would I hire a staffing agency when I could just recruit myself?


Some of the top reasons organizations hire staffing companies include:

  • Try before you buy: if you want to try out someone on a temporary basis before committing to hiring them, this can be a great reason to utilize temporary or temp-to-permanent models.
  • Unable or too busy to find talent yourself: sometimes you need help finding someone. Whether you need a whole bunch of people for a time sensitive project or are struggling to find a hard-to-find candidate, staffing agencies act as an extension of your HR to find and send you talent.
  • Cost effectiveness: it can actually be cheaper to bring on temporary personnel instead of paying staff by the time you account for wages, benefits, cost to train, and other hidden employment costs. This is especially the case if the work is not constant and you’d be struggling to find things for another extra employee to do. Similarly, it can be cost effective to utilize direct hire if not having someone in role is costing you money. In both cases, utilizing these services can also cut down on costs related to advertising jobs and employing recruiters.
  • Reduced organizational risk: whenever you employ someone, you’re taking on risk. A staffing agency absorbs the cost of workers compensation and health insurance. They’re also liable for unemployment claims. Finally, should any labor disputes arise, it is usually the staffing agency that is held accountable.
  • Access to their talent pool and expertise: staffing agencies spend all day, every day recruiting. Your HR team, by contrast, may only do it once in a while. When you sign up with a staffing agency, they often have recruited for similar previous roles before and perhaps have some candidates already ready to go. They can often find talent faster than you can and access talent that was not visible to you.

Need staffing help?

Our recruiters are ready to assist. Reach out to us today to schedule a consultation. You can also check out our guide to picking the right staffing agency for you.

Picking the Right Staffing and Recruiting Agency

Staffing agencies are unique in their service offerings, price, and specialties. Peak Performers, for example, offers direct placement, temporary staffing, and other recruiting services to the government and select private sector clients. Let’s take a deeper look at some of the primary considerations to look at when considering recruiting firms and how best to shop wisely for these services.

What Do You Need?

What kind of service you need and what services you’d be open to? Most recruiting services break down into: temporary staffing and direct hire.

Temporary staffing

Temporary staffing services is when the agency recruits and fills a role on a temporary basis. This could be due to a particular high-demand project or filling in for another employee while they are away. Although the temporary employee reports to work at the client company, these individuals are employees of the staffing firm, not the client. The client guides the daily work assignments and coordinates with the staffing firm for employee-related issues. The staffing agency manages the candidate’s performance in conjunction with feedback provided by the client’s on-site manager.

Direct hire

Direct hire services is where you outsource the recruiting efforts to find someone for your internal position. From day one, the recruited candidate will start as your employee. Once your company has hired the new employee, the recruiting agency will have no further responsibilities (although good ones will offer placement guarantees and follow up on their placements).

Other Recruitment Service Models


Temp-to-perm hiring is when you want to bring on a temporary employee for a trial period with the intention of converting them to an internal employee if they perform well on the job. You will want to discuss with your staffing agency how long that trial period is and what kinds of fees (if any) will be charged when they are converted. You will likely negotiate the compensation package directly with your potential new employee during the conversion process.

Executive search

Executive search services is largely the same as direct hire except that it is typically reserved for executive, director, and C-level positions. The recruitment firm has a strong network that they can leverage to identify executive-level candidates, who are often already employed (perhaps even outside of your geographic area) and need to be sold on why they want to leave their current job. Typically, the client pays a higher markup percentage than they do for direct hire services and the recruiting firm takes a very “hands on” approach with candidate management to ensure a successful placement.

Ready to order temporary staff? Contact us or learn more about our contracts and services.

Costs and Fees for Staffing

Staff represent the largest expense for nearly every business. When considering the costs a recruiting firm is charging you, consider that they are absorbing many of the costs and risks associated with recruiting for you. For temporary placements, the staffing firm is also absorbing multiple ongoing employment costs as well.

Temporary staffing charges you a bill rate based off of the hourly wages paid to the temporary worker plus a markup fee. This fee accounts for the cost of staff time; advertising your job to attract candidates; software costs and payroll processing fees; employment taxes; benefits paid to the employee, and general expenses that help to “keep the lights on.” They are also paying for and assuming the risks of possible future workers compensation claims, unemployment claims, and labor disputes, such as discrimination or wrongful termination claims.

Conversion costs? When selecting your temporary staffing vendor, ask about costs to convert temporary workers to full time employees if you decide to hire them on permanently. Conversion costs are typically waived after a period of time, typically around 90-120 days. When applicable, fees typically are a percentage of the candidate’s first year annual salary.

Direct hire/executive search is charged in one of two ways: a percentage of the placed candidate’s annual salary or a flat fee per search. These services are offered in one of three ways:

  • Contingency basis—The agency only gets paid when they make a placement
  • Partially contingent basis— A portion is charged to start the search; another portion is due mid-way through the search; and the remainder is due upon successful hire of a candidate. This model allows you to space out the costs, and the final payment is typically determined by the exact first year salary negotiated with the candidate.
  • Retainer basis— As the client, you pay a monthly or quarterly retainer fee to the recruiting firm. Some very competitive recruiting industries with an extremely restricted pool of candidates may only offer retainer-based searches. A retainer may also be useful for a large client who has ongoing hiring needs. The retainer fee ensures that the staffing agency is continually on the lookout for talent suited for your needs.

What about discounts?

Some clients conclude that filling the same role multiple times requires less time, energy, and expense from the recruiting firm. This is simply not the case. Filling three identical positions amounts to about three times the work as filling a single position. The majority of staff time is spent screening and interacting with candidates personally. Volume discounts are sometimes offered not because of the workload but rather the guarantee of future business.

Placement Guarantee?

For direct hire and executive search, it’s also important to ask about a placement guarantee. Most companies will stand by their work and the quality of their placements, but it’s important to have this in writing. Placement guarantees are often open to negotiation and range from 30 days to one year (usually depending on the difficulty of filling the job).

Size and structure of recruitment agencies

Recruiting and staffing firms take many shapes and forms. It’s important to recognize what you’re shopping for in a firm and who you’d most like to do business with.

Local start-up

Many recruiting firms are started specifically to service a specific geographic area. These firms are often located in smaller cities and have civically active owners and operators. Expect more informal dealings and a firm who is uniquely dialed into the local workforce.


Large national firms may take a franchise approach. They will be branded as a national chain but be restricted to a particular territory (such as a geographic area or staffing segment). Owners of these franchises will often be enthusiastic small business owners. However, certain aspects of working with them may feel more like working with a large, national firm.

Boutique firm

These firms do direct hire and executive search for a few specific industries from which they’ve previously worked. The recruiters are typically well connected within that industry; they “know people and know the business.” These firms are not typically geographically restricted and you can expect them to be ideal for very specific placements.

Local, mid-sized firm

Peak Performers falls into this category. This type of firm has expanded beyond local start-up and offers a wider variety of services. While they may still have a particular geographic or industry specialization, they have more experience, more customers, more available services, and a deeper candidate pool. Expect from these companies more professional processes, well-trained personnel, and a friendly, local touch.

Large, national firm

These firms have expanded to have many geographic locations nationwide. They will often offer a wide variety of services, have deep candidate pools, and cheaper prices (due to economies of scale). However, there are potential downsides. You will probably never meet your point of contact. Also, they may not take a deep approach to understanding your business and your needs, since they service so many customers at once. These firms also tend to have higher staff turnover, and you may have a hit-or-miss experience with new account managers. Finally, these firms may be less flexible and adaptable to your needs. In addition to the parameters of their corporate rules, they may have restrictions from previous contracts about what companies they cannot recruit from. They are often contractually obligated to avoid conflicts of interest.

Other Considerations for Picking Staffing Agencies

In addition to all of this, here are some other considerations that help you evaluate whether a recruiting company is truly a quality firm.

What is their communication pattern?

A lot can be said about initial correspondence. Is the phone answered? When you leave a message, do they call you back? Are emails professional and prompt? Less reputable staffing firms often cut costs first with their internal staff: having less staff than they need and/or less experienced staff.

Staffing Industry specialization?

A past record of success is the best indicator of future success. For this reason, consider finding a recruiting firm that has experience in your industry. For instance, our specialization at Peak Performers is with the public sector. Many of our clients are state and local government agencies. When you get a firm that specializes in serving an industry, they have an existing candidate pool and referral network from which to recruit. They are also more aware of industry best practices and unique business processes and procedures.

What are their technological abilities?

Modern recruiting firms use applicant tracking systems, advertise jobs widely across the internet, and have robust internal processes for ensuring employees are paid on time. Finding a firm with good digital tools reflects an investment on the part of the company toward working efficiently and effectively.

Are they your future recruiting competition?

For executive search positions, make sure to ask about the firm’s policy on recruiting candidates away from your organization in the years following your work together. Who is “off limits” and how long does that last? (The industry standard is two years.)

What is their reputation with job seekers?

It’s worth taking a moment to read online reviews of the staffing agency you’re about to do business with and approach it as though you were a job seeker. Are they getting bad reviews online? Do they seem to be responsive and empathetic to those negative reviews? Remember that a recruiting firm represents you and your brand among jobseekers. Moreover, the workforce they provide you will become a part of your organization, even if it’s only on a temporary basis.

If you ever have questions about whether Peak Performers may be right for your needs, reach out to us by contacting or calling (512) 453-8833.